Posted
by
samzenpus
on Sunday November 25, 2012 @07:15PM
from the wage-reduction dept.

First time accepted submitter ASDFnz writes "The reward for successfully completing a block (also called mining) is about to halve from 50 bitcoins to 25. From the article: 'Bitcoin is built so that this reward is halved every 210,000 blocks solved. The idea is as bitcoin grows the transaction fees become the main part of the reward and the introduction of new bitcoins slows down to a trickle. This also means that there will only ever be 21,000,000 bitcoins in circulation.' You can watch the countdown here."

The incentive to work in capitalism is just as shallow, just better veiled, but it starts to fall apart as well now. And please apologize when I ignore the rest of the diatribe. I have no idea where you pull those examples out of, but I better not touch that place.

In communism, the promise was "work hard, and soon in the future we'll all be living in the socialist worker paradise". Well, people started out believing in it. No, seriously. I'm serious. Look at how Russia developed in the 1920s, they turned from a backwards agrarian society that was close to a feudal system into an industry nation within a few years. At a horrible price, no doubt about that, but people believed in it and pulled through. Well, guess what, it didn't work out. And after WW2, it became plainly obvious to everyone that this "work hard and soon we'll all be living better" is an empty promise. Especially when you see how on one hand the party idiots are being promoted and have access to things you can only dream of, and that no kind of work or butt kissing will ever give you the same. You may get ahead a bit compared to your peers if you are a "more loyal comrade", but it's just the crumbs from the cake the big players eat, and that's a circle you cannot climb into, no matter how much you try, it's a closed circle of "friends" that matched and mingled in party organizations and party training camps. Your only chance to get access to at least those crumbs is that you work extra hard "for the greater good", volunteer for "extra duty" and similar crap.

The joke is now that capitalism works actually the same way. Well, not quite the same way, it's different empty promises and different approach, but the end result is exactly the same. The promise of capitalism is "being rich is the goal, because money can buy whatever you need, work hard and one day you have the chance to be rich too". Well, some people buy into that. Most, actually. No system could exist without enough people supporting or at the very least not sensibly opposing it. But it becomes more and more obvious that the promise is shallow, too. No amount of work will ever elevate you to the executive levels of the big corporations where the big bucks are being handed out. That's a closed circle of people who know each other from various fraternities or buddies from the same schools. Schools that you couldn't go to because your parents are not rich enough to send you there. Because they didn't have a degree from said schools to get into a position that... you get the idea, right?

Money stays amongst itself, there's no butting in for you, peasant. But if you work extra hard, you might get promoted in the office treadmill, you'll get some bullshit title and you'll feel important because now you make the big bucks, i.e. like 200 bucks more per month. But "rich", in the capitalist sense, you'll never be. Neither you, nor your kids.

So, essentially, whether you call it communism and make party loyalty the decider between powerful and peasant, or whether you call it capitalism and use money for the same, it's not that much of a difference. If you're not in the correct circles, if you're not with the right people, you won't get anywhere in either system. The reason capitalism works better is simply that it's harder to see through, that the lie of "everyone can get rich if you work hard enough" is compelling, especially if you get to hear about someone actually "making it". In communism, those people were "worker of the month", btw, and had about as much influence on your well being. Well, maybe it upped your monthly quota because obviously it's possible. In capitalist terms, I guess it would be something akin to "why hand out wellfare, you see there is that one guy that made it, why can't they?"

Not refuting the points you made (as I believe mostly the same). Just here to point out that we shouldn't assume that communism and capitalism are both equally corruptible.

In communism, there is one entity: society. Even though they preach about having stateless social order, society itself is the government. On the surface, this looks like democracy but better. But someone ultimately has to be in charge of that government/social order, and the guy who wants power tends to be the guy who wants to abuse

There is a difference between Capitolism and Socialism, in that Capitalism rewards hard work by the individual (ostensibly) while the promise to the worker in Communism is that hard work pays off for the collective. The reality is, that Capitalism is better for the collective in the end.

Problem is, we don't run Capitalism any more, we are more of a combination of statism and corporatism, that effectively shuts down innovation and competition with rules and regulations and increases to the entry barrier. So,

Capitalism rewards hard work by the individual? Are you going to tell that to the mom that works 3 jobs to somehow get by and make ends meet? I'm sure it will lift her spirits, and she'll readily believe you.

The problem why our capitalist world is cracking at its seams is that people start to see that the promise is simply and plainly a lie. There's no cake. And there is no reward for hard work. Capitalism is mostly a game of luck and chance. The luck to be born into the money. The luck to be hit by a freak

It's not a question of whether it's possible to start from nothing and be well off. It certainly is, for a few select people. The question you should ask yourself is how many succeed (preemptive addendum: even if you only consider those who try). A lot of people fall prey to confirmation bias when they discuss capitalism: they see ten people that succeeded, but not the ten thousand that didn't — because no one sings the story of those that failed.

Gold has actual mechanical uses (electrical contacts.) It also has bauble value.

BitCoins have zero intrinsic value, and they require electric and Internet connectivity to be used. Gold requires a civilization level just a step above pure anarchy to be useful.

IMHO, it is sort of suspicious that there is this ramp where early adopters get these bonuses, and people hopping on late end up having to put a lot more resources in for the same coins... that combined with the value of the currency going up/down in insane swings, makes it useless as anything other than a novelty.

There is a major difference between political anarchy and chaos. In political anarchy you still have order, but instead of a central government controlling everything it's done with voluntary contracts at the individual level. One of the core beliefs an anarchist has is personal freedom via volunteerism is the only real kind of freedom. There will still be a need for money in a society like that. It could be gold, silver, beads, goats, or whatever the two people doing business agree on.

If you or I believe that's a viable political structure is a different conversation.

no, the point i made was that it wasn't a viable political structure. at least in my opinion. i'm not concerned with the difference between anarchy and chaos on a theoretical level. i'd like to see it in practice, but then again i don't. unless self-interest is extinguished, no perfect system can be devised. a system's flaws might just be what keeps them viable, if not perfect.

"There is a major difference between political anarchy and chaos. In political anarchy you still have order, but instead of a central government controlling everything it's done with voluntary contracts at the individual level. "

There is no difference. In a real anarchy you pay for 'protection' to your local gang, which replace the government quite quickly.

Gold has actual mechanical uses (electrical contacts.) It also has bauble value.

BitCoins have zero intrinsic value, and they require electric and Internet connectivity to be used. Gold requires a civilization level just a step above pure anarchy to be useful.

IMHO, it is sort of suspicious that there is this ramp where early adopters get these bonuses, and people hopping on late end up having to put a lot more resources in for the same coins... that combined with the value of the currency going up/down in insane swings, makes it useless as anything other than a novelty.

I find it pretty unfair that the early gold miners got such large bonuses. It's much harder to mine gold nowadays. No more standing by the river with a sieve will do it:-(

With a gold standard (that no longer even exists, of course) it's only inflationary if the new supply of gold grows faster than economic expansion. Otherwise even gold can be limiting and deflationary.

Bitcoins, on the other hand, will be completely deflationary due to their very finite and rate limited supply. Using them as a currency would encourage hoarding and completely dry up lending, pretty much sending economic growth down the toilet.

Bitcoin is the greatest real-world experiment in Austrian economics [wikipedia.org]. For once we'll get to actually see if a "deflationary spiral" will actually occur when the rate of money creation slows, or if the Keyensians were just full of it.
Whether bitcoin actually succeeds or not, we'll at least get some really good data.

"A deflationary spiral is a situation where decreases in price lead to lower production, which in turn leads to lower wages and demand, which leads to further decreases in price.

If nobody is really pricing goods in bitcoins and nobody is getting paid in bitcoins, how could the feedback cycle that would normally cause a deflationary spiral exist? Even if bitcoins deflate massively, I don't think that necessarily proves the Keyensians right.

I think you're missing the fact that there's no such thing as a "deflationary spiral". Likewise, inflationary spirals don't happen out of the blue, not without an influx of new money to bid up prices.

If people knew for a fact that prices were going to be spiraling upward at a constant rate for the next period of time, speculators would bid up prices to that level in the present, plus the cost of time (interest). This is a mathematical theorem [wikipedia.org]

Bitcoin will let us see if money is something that can truly exist without government, or if the anarchists were full of it. Bitcoin's success or failure will almost certainly tell us more about this than about deflationary spirals.

I think it will tell us that even in the most optimistic scenerio where Bitcoin achieves 100% market penetration, some people will go to their graves insisting that it won't work, isn't really money, and is all just a ponzi scheme.

I think it will tell us that even in the most optimistic scenerio where Bitcoin achieves 100% market penetration, some people will go to their graves insisting that it won't work, isn't really money, and is all just a ponzi scheme.

Conversely, if Bitcoin is around for 100 years and nobody but a handful of extreme-right libertarians thinks it's worth so much as a wooden nickel, we will have learned empirically that some people will always go to their graves still wishing for a pony.

My friends declined. It seems that, to them at least, the so-called fiat currency actually has more value than gold.

In a way the fiat currency does have more value. First of all, the currency is easy to accept and transfer and count change. Did the buyer have real gold or just some "yellow metal" of unknown chemistry? Electroplating is part of high school chemistry; "soft gold plating" can be done entirely in a solution [ucsb.edu]. Dealing with precious metals requires expensive infrastructure, such as equipment that can validate your coin. Often even banks cannot validate their stocks of metals without drilling. This is not going to work in retail. I bet your friends' cash register is not configured to receive payments in arbitrary valuables.

Secondly, the rate of exchange varies, and if the bike was purchased from the OEM for dollars it better be sold for dollars if you want to have a fixed, known margin. Selling for gold is equivalent to selling for dollars, and then the seller immediately buys gold for the whole amount. If he needs dollars to buy more products he then needs to sell this metal on the market and incur loss as the broker's fee. If the price of the metal goes down for a day then the seller will also lose money on the difference. (He of course would gain also if the price goes up; but very few bike shop owners moonlight as bullion traders.)

If I were in place of your friends, I would [also] suspect an attempt at fraud. What people say is totally irrelevant; con artists specialize in being very convincing.

If I were in place of your friends, I would [also] suspect an attempt at fraud. What people say is totally irrelevant; con artists specialize in being very convincing.

And yet I have more than a few friends who actively replace their surplus currency with gold, whenever they can. Their main reason for doing this is not really because they think gold is a great investment, but because they think the gold will still have value "when the shit goes down," meaning mass revolution and collapse of the American economy and society as we know it. I have had no more success trying to convince them that conducting an economy based on precious metals after the collapse of American so

And yet I have more than a few friends who actively replace their surplus currency with gold, whenever they can

Those are two big differences, as they say in Odessa [wikipedia.org]. Purchasing physical gold from a reputable dealer (and taking delivery) is entirely unlike accepting a bar of unknown yellow metal from a stranger who just walked into your business and left with an expensive product just minutes later, never to be seen again.

But I understand what you (and your friends) want to say. Unfortunately, preparing for TEOTWAWKI is counter to preparing for normal life. Your purchases are basically reversed. Most people cannot afford the bunker mentality, just because they need income from investments, they need to buy luxury items for their family, toys for their children, non-MRE food for everyday eating. There must be a balance, an exact instant in time when you understand that the life as you know it is not in the cards - and then you flip the bit and start working for the cellar.

I personally don't believe gold will be valuable after the SHTF. You cannot eat gold - and food will be the top priority, competing for the first place with means of protection (weapons and ammo.) Gold cannot be sold after SHTF because there will be no market. You can always exchange a.223 round for a few cigarettes, and that barter does not require a market because both goods are directly usable. Gold is not usable, unless you need sinkers for fishing. Gold has to be exchanged on a market for something else that you need.

My personal theory is that after SHTF there will be only two universal currencies: food and ammo. Nothing else will be even close. Perhaps ammo will be even more valuable because you cannot eat if you are dead; but if you have ammo you can get food (in the forest or elsewhere.) Additionally, food can be produced - cows don't read newspapers and they will continue their lifecycle. But ammo is a high-tech product, it cannot be easily put together even if you are into reloading. Once you run out of good cartridges and primers you are done for, even if you can cast your own [low quality] bullets.

I have had no more success trying to convince them that conducting an economy based on precious metals after the collapse of American society will be difficult

As you see, I'm not disagreeing with you here.

the collapse of society -- for which they have also been stockpiling assault rifles, BTW -- is unlikely to occur in their lifetimes.

That is not under our control. Do you think Syrians or Libyans or even Egyptians expected the Spanish Inquisition just a few years ago? But here they are now, in the midst of a civil war, or on ruins of a wealthy oil state, or preparing for said ruins to be made. Do not forget that the fall of USSR was news to places like CIA - which should have known; but they missed that and more. After USSR disintegrated several civil wars have broken out; some are still simmering. And if you look back into 1990-2000 you will see rich, happy Yugoslavia going up in smoke.

The USA has a very fragile economy. First, it's an oil-based economy. No food can be grown or delivered without oil. Significant amounts of that oil come from abroad. There are needs that cannot be cut, so even a 20% cut in supplies will send the prices of gas to the sky - and the prices of food will follow. Oil is bought for dollars, and dollars are borrowed. Same happens with much of everything else that we currently receive on ships from China. This means that the country lives on credits - and the creditors may not be willing to finance this economy forever. In essence, not only I and you are not in control of the exact date of TEOTWAWKI, but even the government is not in control. The USA has too few native industries with exportable products to finance purchase of foreign energy; and domestic energy production is limited. I do not know for how long this economy will last, but it cannot last

Bikes seem to be one of the largest broadly tradeable but untracked commodities that hit retail. Scammers are always looking to get bikes... A $1,000 bike can net the scammer 2 or 3 hundred real dollars. It is, in a way, a currency.

If you believe the mhash/s speeds of (yet to be released) ASIC hardware [bitcoin.it], as well as decentralized P2Pool mining [bitcoin.it], then you'll need to factor in the effect of disruptive technologies on "deflationary spirals". Bitcoin mining was something I was recently evaluating and decided against after researching [bitcoinx.com] and factoring in the effects of profitability decline per year on revenue, especially if ASIC hardware delivers as specced.

From what I understand, most Austrian economists dismiss bitcoin because according to Austrian economics, currency must arise from something that is originally useful in the market for purposes besides money. And Austrian economists don't teach that deflationary spirals don't occur; instead what I've heard is that they believe that deflation is not a bad thing.

I'd like to see bitcoin adapted to represent trading units of gold or something else, issued by multiple competing sources and redeemable from the o

There are services that will do this for you (ie. allow you to buy from Amazon using 'coin.) Admittedly, you're then beholden to that third-party who actually does the buying in your stead, rather than direct with Amazon, but nonetheless, without changing bitcoin into another currency, you can buy stuff on Amazon, and eBay, and a number of other sites, not to mention the ton of smaller, but no-less-useful sites that allow you to trade directly using Bitcoin...

You're conflating economies and currencies there. Also, there's nothing stopping a "third party" Government ruling that bitcoin is illegal. It's largely off the legislative table the same way it's off most people's radar. Once it gets noticed it could easily get put up on the same shelf as file-sharing and hacking. Or if you prefer a historical example it could be made illegal the exact same way gold-hoarding has been declared illegal in the past. What? Who would do anything so tyrannical as forbid the poss

Did you not notice the fact that right now, at this very moment, the average person in Argentina doesn't give a shit about what their government says is illegal and actively ignores and works around every law implementing currency controls?

It provides a censorship free way to transfer small amounts of money pseudonymously over the Internet, something regular payment providers still fail at (Paypal censors, proper bank transfers are far to expensive).

bitcoins have practically zero value in the vast majority of financial transactions

Gold has practically no value in the vast majority of transactions (try paying for goods at Target with a chunk of gold). Ditto oil, corn, FCOJ, pork bellies or many other things with recognized value. That's why currencies developed, to serve as a proxy for value. Whether bitcoins will become widely recognized is yet to be see, but they can be traded for hard currency just like the items mentioned above, so they do have reco

If you walked up to the checkout at Target with 10 lbs of gold you wished to trade for 10 lbs of chocolate, I imagine you'd be successful. Now if you tried with $1,000,000,000 worth of bitcoin, I imagine that you'd be unsucccessful.

There are also a few VPS and VPN providers who accept bitcoins for the same reasons, and because now they can sell their services to customers anywhere in the world without being limtited by the legacy banking system's inability to process payments from certain places.

The reality is that all these sites are using Bitcoin for is a transaction mechanism. They are not keeping their rake in bitcoins, they are exchanging it for cash because that is what the real world operates in. Similarly, the people making the wagers are exchanging their cash for bitcoins in order to play the game. In essence bitcoins are just being used as a payment processor for these sites.

Also, people who think bitcoins are not under government control are woefully mistaken. Aside from the pittance of

Except one can not buy bitcoins with a credit card or paypal,1. because these companies hate bitcoin and what it represents for them2. because of a high chargeback risk no one who doesnt trust you would sell you bitcoins for paypal

Maybe, but I still think the more likely scenario is that nobody but those who are already using them will ever use them. They will be held onto with people talking about their potential value as everyone else goes on with their day-to-day business.

I'm no crypto expert; but it was my layman's understanding that the bitcoin setup is(barring presently unknown attacks) unforgeable; but that there is nothing particularly special about the "Genesis block" [bitcoin.it] at the beginning of the bitcoin block chain, aside from mutual acceptance of it.

Given that, while it is not possible to forge a bitcoin or to produce more than 21,000,000 of them, it should be possible for anybody who feels like it to simply define a new Genesis block and go hashing merrily away. The products of this block chain will be distinguishable from the products of any other block chain; but user convention could assign them value in exactly the same way as it did the old ones(or, more probably, they would trade at a discount against the 'original' bitcoins).

Any speculation on whether the people-who-care-about-bitcoins of the world are sufficiently rabid about some sort of deflationary theory of currency to prevent that, or will we start seeing N different distinct block chains trading between one another as well as select real world commodities?

Bitcoin continues to grow and fundamentally alter trade worldwide in the coming decades.

Bitcoin gets held back by a number of swift and excellent electronic payment services from large companies like Google and Facebook and remains niche to those who care about privacy and freedom.

Right now, I think the latter is slightly more likely.

All those electronic payment services from Google and Facebook are going to fall into the same trap as other centralized services. They'll have to deal with the media companies who sue them if they provide payment processing services to companies that Hollywood doesn't like. They'll have to implement arbitrary restrictions to satisfy AML. They'll be forced to restrict service because one government somewhere throws a fit if they serve customers from the wrong part of the world.

I used to be big on the BTC mining thing. These days, however, it just doesn't matter anymore.

I got into BTC fairly early, back when it was profitable to run the mining software on a single workstation to suck up unused cycles. At that time, it was actually profitable to invest in dedicated hardware to mine coins- so I (and a lot of other people) eventually did. My first dedicated rig was a HP ML350 G5, which set me back about $4000. It ran two 8 core processors and basically sat around all day mining bitcoins.

Later on when the GPU accelerated mining took off, I bought and built four systems from off the shelf components, and the ML350 was rededicated to running ESXi with a bunch of VMs for mining and managing the four slaves. Each slave had 3x ATI GPUs, later those were swapped out for NVidia GPUs for other various software reasons.

Then the FPGA (and later ASIC) players came into the game. It started with development boards (FPGA boards purchased direct from the chip manufacture), but later spiralled into custom FPGA boards in nice cases that you could stack or keep around on a metal shelving system easily enough. Now, the custom FPGA boxes for BTC mining basically put the GPU miners out of business- the introduction of FPGA hardware increased the BTC mining difficulty to the point that it was pointless wasting the power mining with anything other then.

The problem was that by the time the FPGA market exploded, it was *barely* worth investing in the hardware to get in that late in the game. Previously, buying a few PCs and loading them with GPUs was a cheap way to make some extra cash. FPGAs however cost a hell of a lot more and the difficulty of mining BTCs had increased so much that you would barely break even, and you'd be bloody lucky if you actually made any money in the end.

But FPGAs weren't good enough. People started thinking that they could build silicon to do things even faster, and thus the ASIC market started to emerge and take off. The problem here is that while an ASIC kicks the shit out of an FPGA (and anything that came before the FPGAs)- they're so expensive and the BTC difficulty has been bumped up so much by the initial ASIC wave and the FPGAs before it... That... Wait for it...

Investing in ANY form of ASICs to make **any** kind of reasonable money... Means that you'll never actually break even.

That's right, the ASICs they've got out there are so powerful and the BTC chain is becoming so difficult to mine, that if you invested $10K+ (which is what you'd have to spend) for a reasonable ASIC setup- you would never actually make any money. If your ASIC box is profitable, it won't be for long since the more ASIC miners join in on the party- the more difficult it becomes to mine BTCs.

So the whole system has kind of spiralled into nothing. Mining isn't profitable anymore. Even if you invest in serious hardware. It just doesn't matter anymore, and now that the "reward" for mining BTCs is about to halve- it's even more of a waste of time then it was before. You could have made money in the beginning if you were there, but if you weren't- it's not worth investing even a dollar into hardware to mine BTCs anymore. That train has long since departed.

BTC is basically just a currency now. Mining is vastly irrelevant and always will be, now that we've got FPGAs and ASICs flying around.

I don't know, at least for me, bitcoin mining is still paying part of my electricity bill. I live in Quebec and, like 90% of Quebecers, I use electricity to heat my house. That means that in winter, 100% of the heat generated by the card to compute bitcoins is used to heat the house. With the mining running, the house electric heaters need to start less often, so the mining is essentially free for me.

I'm using my 3 years old ATI 5870 card to mine the bitcoins, and I get about 4 bitcoins per month, which is roughly $45 at the current rates. I bought the card for gaming originally, and that's what it's still mainly used for. I only mine during the 6 months which require heating (november to april), so essentially, the bitcoin mining is free money. I made about $600 last year and I'll probably make $300 this year. For cases like mine, bitcoin mining is pure profit with no downsides at all.

Huh? I'm canadian, so I usually use the CA Virtex Exchange (https://www.cavirtex.com) to exchange my bitcoins to CAD. The cash gets deposited directly into my bank account after 2 days. There are a lot of exchanges that allow you to trade for bitcoins, in just about every currency you want.

If I don't sell it for less than it could make me, then who the hell would buy it?

Since money is a universal good, one specific reason would be time. A manufacturer can order 10,000 miners built in China and quickly sold for $2M (for example) right away. Those miners will require power and time to produce bitcoins - and at that time in the future nobody knows what the exchange rate of BC will be. Do not forget that the $2M is still an investment. To summarize, the seller of mining hardware is willing to

Here's the highest-level view possible: a bunch of anarchists thought that an interesting cryptographic trick would let them have money without government, and then a bunch of opportunists realized that they could scam people with Bitcoin much in the same way that bankers scam people with unusual investments.

How on Earth does SETI@Home benefit society? Even if by some bizarre coincidence, we actually detected evidence of intelligent life outside of the solar system, the likelihood that society would benefit by that is basically nil.

Directly, on the positive side, it would pretty much kill some religions, or at least transform them into less harmful variants that don't preach that humans are unique and masters of everything.On the negative side, it would probably trigger some new ones. If people can believe in Xenu, Kolob, Ezekiel or John's revelation, they most certainly would be able to start cults based on extrasolar intelligence too. Hopefully, most of them will put on their Nike sneakers and leave us.

Indirectly, it would likely renew interest in space exploration, which I think might benefit us all, and especially our descendants and their chance of survival.

So what you are saying is, if I happen to have some Bitcoin units, I should hang on to them as long as possible, because eventually people will have divided Bitcoin units up to the point where the handful I saved up will be worth a fortune? Sounds like a great currency (except for the whole "this is going to fail" part)!

Yep. That's a feature of any currency without inflation, and why inflation is actually a good thing. It discourages hoarding. Neutral or deflationary currencies are only good for the people who already have a lot of them.

Neutral or deflationary currencies are only good for the people who already have a lot of them.

Nope. You think I use US currency because I like it? Because I think it has value over any other currency? Nope. It's because that's what I get paid in, its the money they accept at the stores I go to. I put it to you that no matter what price it's trading at, if I want to exchange money into Bitcoin I'll be able to. Why would I do such a thing? Because it's the currency that some people accept, and it has far less transaction fee than a wire transfer. You think I wouldn't just use USD for that if I

Depends if you consider "hoarding" to be a bad thing in itself. Some of us just call it "saving". Such a currency would put a break at the constant need to invest in stocks and other stuff, as well as the need for governments to promote savings/insurance/retirement artificially. It would diminish the risk and eliminate a lot of compulsive consumption (better spend it right now in any way than to loose it to inflation right?).

I'm not saying that you are wrong though, just saying, that every coin has two s

Such a currency would put a break at the constant need to invest in stocks and other stuff

Yes, it would. Investing in stocks and "other stuff" is, likewise, a good thing. Investments, really, are a form of loan. You're giving someone money with the expectation that, if the enterprise they're spending your money on succeeds, you'll receive your initial investment back, plus some. All commercial loans are backed by investments in "stocks and other sutff" - your mortgage, your small business loan, venture capital, everything. The interest you get on your savings account? That's made by the bank inv

That's debatable. You seem to be taking things a little to the extreme when you say "no one". People will still invest, they are ambitious. God, people still go to CASINOS. Investments are risk, and not necessarily a good thing, especially if compulsory. Also, our economy based on loans and debt is far from healthy. Ask people who lost their retirement funds.

I understand where you are coming from, that's why I said you were partially right. But any real economy is a matter of balance. The current incenti

It's also empirically true. Sustained macro deflation ends in war, misery, or depression, or some combination of the above. At some point it is easier to take the deflationary currency than earn it. This has already started to happen with bit coins: when the processing power required to break it is less than the processing power to earn it, virtually the only rational thing to do is break wallets.

1) One BitCoin and one account is as good as the other, so you can swap them outside the system. I can send you 100 BTC from my account A to your account B, then get back 50, 25 and 25 BTC back randomly delayed from your other account C to my other account D. Sure, all the transactions are public record but there's no link between the 100 BTC I used to have in A and the 100 BTC I have now in D. Only the swapping service could possibly link those transactions together.2) If you can both acquire and spend your money anonymously then the transactions are meaningless, say you do anonymous rent-a-coder work for BTC and use those BTC to pay for web hosting that you only access anonymously. That's the essence of a currency right there, you can make money for doing work and then spend it on what you choose. Yes if any point you're tied to an identity they can try rolling transactions both forwards and backwards to see where you got money from and what you spent money on.

That's not really one of the problems with BitCoins, the main reason is exactly this that the supply is diminishing. Hoarding old coins from when they were easy to make only seems like a better and better idea, unless of course the BitCoin economy collapses because everyone's hoarding. I bet a lot of the people that offer services for BitCoin are the same as those hoarding large BTC reserves, the pyramid game only works if they can sucker more people to join in.

* it's censorship resistant (can't be shut down, just like bittorrent)
* it has low transaction costs and low barrier to entry (freedom of economic transaction)
* it can be transmitted via the internet globally in short time (max 1 hour)
* it's cheap and easy to secure against theft and loss

The additional advantages of Bitcoin over FIAT currencies:

* the supply is limited
* it's open source and not controlled by banking cartel or government, open to anyone

The disadvantages of Bitcoin:

* its acceptance is very low, to say the least
* it's hard to understand and therefore hard to trust
* it offers an ideal playground for criminals and scammers
* you can add your own criticism here

I can't see any reason for the parent comment to be at -1, that seems like a moderator with an agenda at work. So I'll use my excellent karma to repeat what roman_mir says here:

'Hoarding' (saving) currency itself is only useful if the interest rates on all investments are so terrible (low, or maybe even negative) that you can't make money by investing in anything. But in a legitimate economy, that is not controlled by central banking and central government this does not happen, because the more money people save, the lower the interest rate becomes, because there are so many savings, their value is going down. USA 1800 to 1917 has conclusively shown that money that is intrinsically valuable and is slightly deflationary is still not 'hoarded' but is used for investments because there is no manipulation by the central government. Central government was basically irrelevant, it wasn't spending much on anything because it wasn't doing much of anything, and so it was cheap and didn't meddle with individuals investing their money in businesses, whichever way they wanted.

There is a huge disconnect today between value of savings (interest rates) and real existing savings. The interest rates are so manipulated by the central banks that it seems like the system is flush with cash (is that the saying?) The interest rates are at historic low, actually they are negative, and the only people who can find yield are banks that borrow at 0% from the Fed and then lend to the Treasury at 2-3%. This means that the government has completely crowded out all private investments while sending an insane fake signal into the market that there are huge savings in the system, but there are none, the system is deep in debt, it has no savings. Whatever meagre savings that individuals manage to collect are irrelevant, because their share of government debt has gone through the stratosphere.

I think that Bitcoins have their use, but they have no intrinsic value at all, they are based on confidence, always were, based on the confidence in the protocol. Bitcoins are valued because people trust the protocol, and surely that protocol is much more trustworthy than any government and any opaque bank. So the interesting part about Bitcoin is will the trust in protocol be enough, because again, there is no intrinsic value?

So when you say: "Bitcoins will perish because people hoard them", the point is that hoarding something without any use that can be used to invest doesn't make sense if the economy allows any investments in the first place (more precisely if the central government doesn't prevent investments, which is the case now).

However hoarding a resource that has no intrinsic value is dangerous. If you want to hoard and not to invest, you do not use Bitcoin, I think people understand that, that's why it will not be a problem in itself. Bitcoin is for circulation, it's not a good safe haven, it has no intrinsic value.

For example storing 1,000,000 USD in Bitcoins for too long is in fact dangerous, you do not want to do that. Either you invest that money or store it in something else (not dollars, not cash, either an investment vehicle or real money, gold or other inflation hedges, property, valuables, etc.) and let people keep trading in Bitcoins.

As a side note I heard some people talking about using flash drives to pay in Bitcoins, but this breaks the way that the protocol prevents double spending, if you copy your Bitcoins onto a thousand flash devices and pay with them somehow and they are not verified by the seller, you can doublespend plenty. So a seller will not accept your file unless he can record the transaction in the network, which is only a prudent thing to do, otherwise it's the seller who will be out of money.

It's a proof-of-work calculation that records a transaction history. Basically, it's to prevent double-spending; if someone attempts to transfer the same bitcoin to two different people, the person who gets it is the person who had more computational effort go into recording them as having it. If the amount of computational effort in recording transaction histories were low enough, someone could double-spend by recording an alternative history on a powerful computer and having it supersede the transaction history everyone thought they were using.

In order to encourage people to put effort into recording the history, there's a reward for doing so. This lead (perhaps predictably) to "mining", where people race to record the transaction history first in order to get the reward.

So there is a purpose to mining, but it's only to keep the Bitcoin system itself running. If people stopped mining (perhaps because the reward got low enough), Bitcoin would collapse. (It's envisaged that once the mining reward gets low enough, people transferring bitcoins will pay a transfer fee to the miners to encourage them to keep mining, and they'd get their income that way instead.)

He's taking the piss because Bitcoin has in fact solved the problem of how to distribute fees to miners without any of the problems you claim will exist, and that's trivially verifiable by anyone who takes the time to learn about how the system works. His wider point which you missed - if you think you've found a obvious and gaping flaw in its design, you're probably wrong, or at least you're going to find yourself in the middle of complex debates with no clear resolution (eg, about Austrian vs Keynesian ec

People already pay mining fees, typically 0.0005BTC / transaction. Right now you get about 0.1 BTC in mining fees from a block, and 50 BTC from the built-in reward (which functions a a way of distributing bitcoin initially). As the reward halves every 4th year and number of transactions supposedly rises, a higher percentage of a miners income will stem from tx fees.

You can make a transaction without paying a fee, but not all miners will include your transaction in their block, and thus your transaction may take a long time to be confirmed.

The miners put most of the computational effort in for you; typically you pay a small fee to encourage them to put your transaction into the chain. Usually the buyer will pay the transaction fee, and the seller won't count the sale as complete until it goes sufficiently far back in the train. (In other words, while Bitcoin transactions are instant, it takes a nontrivial amount of time to determine for a fact whether a transaction happened or not. And as such, a cautious seller won't release the goods immedi

Yes. You can charge 0.00000001 Bitcoins. (Although it would generally take a much larger fee than that to get timely transaction processing)

If more divisibility than this were ever required, this could be migrated to, provided the majority of network participants agreed.
Increasing the divisibility this way would probably be uncontroversial if ever it were in such widespread use that it made sense - but other features such as the 21 Million limit would never get majority consensus to be changed.

Short answer: Transactions require fees. Currently, since the transaction count is easily manageable and block reward is high, most miners process the transactions that have very low or no fees. However, as the block reward diminishes, fees will replace them.

Long answer:

Users have the incentive to pay a high fee so that their transactions get into a block. Miners have the incentive to get every transaction they can get into a block to collect the highest total fees, thus accepting lower fees.